Owning A Home Isn't The American Dream, It's A Maintenance Nightmare, And It's Not Even A Good Store Of Value
It's a slowly simmering fight against eclectic natural forces that want to cleanse us off of the earth's surface.
Owning a home has been marketed to us as part of the American dream for centuries. George Washington’s hobby, while otherwise engaged in trying to win the Revolutionary War, was writing detailed letters to craftsmen meticulously explaining what he wanted in terms of renovations to Mount Vernon.
Washington was frequently disappointed in the updates to his home, and they contributed mightily to his pre-presidency financial problems. In these regards, I suppose, you can, and likely will, indeed emulate his version of the American dream of home ownership. Beyond that recognition, don’t buy into the hype.
I own a house. A couple weeks ago the screen door fell off. Metal fatigue, you see. So, fine, those were old hinges that they don’t even make anymore. My dad offered to come over with his drill, we went to the hardware store, and a couple hours later my screen door was more or less fixed.
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This morning, I was reading a book in my bedroom and heard a faint tapping. What the hell? Could that be water dripping? Indeed. Despite having had my roof replaced last summer, there it was, a little pool of water gathering on my upstairs floor. Well, at least there was no longer any need to plan my day out.
It’s always something. The furnace, the plumbing, part of your fence blowing away, vermin, a poorly placed tree growing into some piece of essential infrastructure — owning a home is a slowly simmering fight against eclectic natural forces that want to cleanse us off of the earth’s surface. And that’s to say nothing of the more routine maintenance: all the hours pointlessly thrown away on lawn upkeep, painting, etc.
When I bought a house, I wanted a place to sleep and to store my books, not several additional hobbies. But it comes with the territory, and at least a home is a good investment, right?
Wrong! A home is a terrible, risky investment with very poor returns compared to what else is out there.
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A certain Machiavellian “Game of Thrones” character once said his unorthodox investment choices beat investing in ships because they rarely sink. Your home is not going to sink (unless you live on a houseboat or in Florida) but it very well might burn, flood, or be shaken into rubble by movements of the nearest tectonic plate.
Yes, you have insurance for this sort of thing (unless you live in one of the many places insurers will no longer touch or don’t have specific coverage for whatever particular risk your home succumbs to), but you are paying a lot of money for this insurance every month. Believe it or not, there is no need to insurance the money I have sitting in my brokerage account.
Sure, the cost of insurance, property taxes, and maintenance all factor into rent as well. But collectivized and spread out (when many renters share the same roof, for instance), these costs are far lower per person, in addition to the big positive factor of not having to really worry about it yourself. Multifamily housing is way greener than single-family housing too.
OK, but what about all the studies that show homeowners are better off financially than everyone else? Well, I bet someone could also do a study to confirm my hypothesis that Rolex owners are better off financially than everyone else, yet that does not mean it is owning a Rolex that causes wealthiness.
People buy homes for many reasons, among them that a home is a status symbol to show off how awesome you’re doing to your neighbors who couldn’t care less about it. People buy a home because they are well-off. They do not become well-off by taking out a mortgage with a heinous interest rate if they are otherwise in a poor financial situation.
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We do now come to the one place where owning a home is better, sort of, than doing certain other things to store your wealth. Unlike other forms of assets, you’re living in this one, so it’s harder to siphon off the stored value that you’d otherwise be tempted to use on overpriced handbags and big gas-guzzling SUVs and shiny stones to wear around your neck.
People do have a lot of wealth accumulated in their homes, and property values do often go up over time (I actually made a killer return on selling my first home — a condo — and there’s a nice tax exclusion for that). Yet, property values do not always go up. See, the Great Recession, Detroit (prior to getting its act together in the past several years), and probably many major metropolitan areas as it increasingly sinks in that most city workers can work from home, can be replaced by AI, or will have no one to inherit their housing since our birth rate is in steep decline.
But you know what’s generally a way better investment over time than a house, even in a rising real estate market? A simple, boring old stock market index fund.
My friends who are not equities investors like to brag about how much the paper value of their homes has gone up on their property tax statements, but that just means you’re paying more in taxes every year. Sure, you will pay a capital gains tax when you sell securities, but right now it’s only 15% for most taxpayers, and you only pay it once (you won’t pay any at all if your funds are held in a Roth account and you can make it to age 59½ without withdrawing them). Tax benefits aside, consider the gains.
The S&P 500 reached 5,000 recently. It was at 2,500 in 2017 (it very briefly fell below 2,500 again in 2020 because of the pandemic, which I don’t really count since it sprang back up again immediately) and was at about 1,250 in 2010. Some homes in some areas might have doubled in value, and then doubled in value again, over the course of the past 14 years. But not very many, and not without their owners pumping a ton of time, effort, and money into them in the meantime.
So, renters, you’re not missing out on anything. As long as you don’t have an overly exploitative landlord, the only thing you are missing out on is a ton of headaches. If you are putting your savings into a broad stock market index fund, perhaps even in a Roth IRA, you are probably making much better investment decisions than the average homeowner out there. Forget about house-poor: cash-rich sounds a lot more like the American dream to me.
Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.
